If the directors are not maintaining adequate accounting records on a timely basis, they will not have a sufficient and up to date understanding of the financial position of the company.
Financial difficulties – preliminary definitions
As the Regulations are concerned with companies that are in financial difficulties, the Information Note considers what constitutes financial difficulties.
Section 818 of the Companies Act, 2014 (the “Act”) defines an “insolvent company” as “a company that is unable to pay its debts”.
Unable to pay its debts
Following on from the above, Section 509(3) of the Act provides that:
(3) For the purposes of this section, sections 224A, 271A and 520A, a company is unable to pay its debts if:
Section 570 of the 2014 Act provides that a company shall be deemed to be unable to pay its debts
c) any judgement or order of any court in favour of a creditor is returned unsatisfied in whole or in part, or
d) if it is proved to the satisfaction of a court that the company is unable to pay its debts
 Whereas section 570(a) specifies a figure of €10,000, that amount has been increased to €50,000 until 31 December 2023 by virtue of S.I. No. 648 /2022 -Companies Act 2014 (Section 12A(1)) (Covid-19) (No. 2) Order 2022
 Whereas section 570(b) specifies a figure of €20,000, that amount has been increased to €50,000 until 31 December 2023 by virtue of S.I. No. 648/2022 -Companies Act 2014 (Section 12A(1)) (Covid-19) (No. 2) Order 2022
Statutory directors’ duties
The Regulations insert a new section 224A into Chapter 2 of Part 2 of the 2014 Act. Section 224A(1) set out that:
“A director of a company who believes, or has reasonable cause to believe, that the company is, or is likely to be, unable to pay its debts, within the meaning of section 509(3), shall have regard to:
This new section of the Act gives a legislative grounding to the pre-existing principal (as set down by case law) that the duty of care of directors moves from the interests of shareholders to the interests of creditors once they are aware that the company is insolvent or is likely to be become insolvent. Further details on this is set out in our previous article on the matter here.
In order to ensure directors are aware, on an ongoing basis, of the company’s financial position the Information Note set out that directors should:
In addition the Information Note also sets out a (non-exhaustive) list of indicators to assist company directors to identify at an early stage whether a situation might be developing in which the company would be unable to pay its debts. The list of indicators is set out in this appendix (pdf).
The earlier that a company can detect its financial difficulties and take appropriate action in response, the higher the probability of avoiding an impending insolvency or, in the case of a business the viability of which is permanently impaired, the more orderly and efficient the liquidation process is likely to be. Company restructuring involves a reorganisation of a company’s finances and/or business in order to enable the company to continue trading.
There are a number of restructuring options available to viable companies that may be experiencing financial difficulties:
Please find further details on Examinership here.
Please find further details on SCARP here.
Informal restructuring arrangements
Private restructuring arrangements are sometimes negotiated between a debtor and some, or all, of its creditors. These flexible and informal restructurings are not a matter of public record.
Schemes of Arrangement
Under Chapter 1 of Part 9 of the Act it may be possible for a company to enter a scheme of arrangement with its creditors. This allows a company to reach an arrangement with its members or creditors or any class of them. Schemes of Arrangement are “commonly used for solvent restructurings and takeovers, and are being deployed with increased regularity for large-scale debt restructurings”.
Seek professional advice
The information Note recommends that directors of companies to whom are insolvent or is likely to become insolvent should carefully consider seeking professional advice at the earliest appropriate opportunity.
A professional advisor will be able to independently assess the business and either assist in turning the business around or advise on winding up of the company in an orderly manner. Seeking the help of a qualified advisor can also protect against any restrictions or liabilities a director might otherwise face. It is important for directors to maintain a record of any advice to demonstrate that the appropriate steps were taken when facing potential insolvency.
If you wish to find out more about any aspect of the above or wish to seek professional advice about restructuring or winding up a business, please do not hesitate to contact our restructuring and insolvency team for a confidential consultation.
Download appendix: Indicators of Financial Difficulties